New Bill Proposed Would Remove Medical Collections

In June 2011, a bill titled the Medical Debt Responsibility Act was introduced to Congress by a bipartisan group. This bill would require the three national credit reporting agencies, Equifax, Experian and TransUnion, to remove medical collections of $2,500 or less from credit reports within 45 days of being paid or settled.

Reasons In Support of The Bill

1. Medical bills are sent to collections too quickly by medical professionals

2. Medical Collections can have a major impact on interest rates

3. To improve credit scores so that Americans can buy homes and stimulate the economy

4. Medical bills are not considered a planned event and are usually a necessity or an emergency

5. Some medical bills are disagreements over co-payment

6. Some consumers may not be aware that the hospital or doctor turned the bills over to collections

7. Some consumers don’t know collections are on their credit report until they apply for a loan

Presently, collections remain on the credit report for seven years from the first date of delinquency, which is when the account first became 180 days past due. Collections are considered a major delinquency and have an impact on credit scores. The amount or type of collections is not considered in most credit scores, only the existence of a collection. All  collections, including medical, with an original amount under $100 are ignored in the most current version of FICO scores, but collections over $100 are still counted.  Collections can take away 100 points from your score; lower scores translate into paying higher interest rates or possibly not even qualifying for a loan.

This bill involves removing medical collections which includes data and also credit history, concerning some experts in the industry.  FICO has commented that medical collections have great value when predicting someone’s credit risk.  Removing them just because they’ve been paid will water down the value of credit reports and scores.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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